Modi wins first victory in West Bengal

Prime Minister Narendra Modi’s Bharatiya Janata Party won a historic election victory in West Bengal state on Monday, tightening its grip on power as the country grapples with economic challenges and the pressing need for reforms.

In June 2024, Mr. Modi’s popularity appeared to be waning when his party failed to win a majority in national opinion polls and had to form a coalition government for his third term as prime minister.

Since then, India’s government has spent money on populist welfare schemes and, more recently, on fuel subsidies, but Mr. Modi’s growing political popularity could give him room to rationalize some of that spending, experts said.

The latest state poll results put an end to fears that Mr. Modi would lose political momentum, as the Bharatiya Janata Party won 206 of West Bengal’s 294 seats, forming its first-ever state-level government.

In response to the results, Prime Minister Modi posted on X and declared, “Lotus blooms in West Bengal!” A nod to his party’s symbol. “People’s power has won and the good politics of the Bharatiya Janata Party has won,” he said.

Of the 11 state elections held since 2024, the Bharatiya Janata Party and its allies retained power in four states and won power in two others, reflecting “the continued popularity of Prime Minister Modi and his party,” the world mediating agency said. city It was written in my memo on Monday.

“Markets will expect a strong political mandate and easier coordination with states to facilitate better implementation of various policy and process reforms,” ​​Citi said.

India’s economic growth this year is expected to be hit by the prolonged conflict in the Middle East. The current account deficit is expected to widen in the fiscal year ending March 2027 due to soaring energy prices and disruption to exports due to the Iran war.

The Indian government has been reluctant to pass on rising energy costs to consumers, instead taking a “major hit” to tax revenues by lowering central excise duty on fuel to prevent pump prices from rising.

Alongside fuel subsidies, the government is also spending money on anti-populist measures. More than a dozen Indian states plan to spend up to 2.5 trillion rupees ($26.2 billion), or 0.5% of gross domestic product (GDP), on unconditional cash transfers to eligible women to help cover household expenses, Bernstein Research said in a report on April 23.

“This victory will definitely strengthen the government’s ability to make politically tough decisions during the economic crisis caused by the Middle East wars,” Ashok Malik, a partner at the Asia Group, a public policy think tank, said in a phone call with CNBC.

He said the government had scope to “raise prices” on energy products, adding that rationalizing some populist and welfare spending would also be on the agenda.

But experts say more efforts are needed to accelerate reforms that address the economy’s fundamental weaknesses, as prolonged delays drive foreign investors to alternative markets.

Morgan Stanley said in a report on April 22 that India’s net outward investment flows for the 12 months to January 2026 were “close to a record low of $500 million.” The bank said this trend is likely to continue.

Foreign portfolio investors are also exiting Indian stock markets in record numbers. Since January this year, they have sold over $20 billion worth of Indian stocks, more than the $18.9 billion they sold in all of 2025, according to data from central depository NSDL.

Rising fuel costs and an exodus of foreign investors have weakened the economy. Rupees The US dollar has fallen to record lows, and the economic crisis is deepening.

On the other hand, as artificial intelligence technology advances worldwide, white-collar employment in India’s IT sector is decreasing, and manufacturing employment is not expanding sufficiently. Up to 45% of India’s population continues to depend on agriculture, but this sector contributes only 15-16% to the economy.

The government’s last attempt at agricultural reform failed in 2021 in the face of fierce farmers’ protests.

“Advancing the electoral map will inevitably lead to faster reforms,” ​​said Sushmita Sharma Deveshwar, chief India economist at global data TS Lombard, a financial analysis firm, adding that “India only reforms when it is actually in crisis.”

Although electoral victories in state polls now give the BJP and its allies a nearly two-thirds majority in the upper house, they still lack the strong powers needed to pass tougher reforms in the lower house, according to experts CNBC spoke to.